Saturday, August 09, 2014

Basic Income is good because it's basic

Mike Konczal has a post attacking the libertarian support for Basic Income. Paul Krugman approves. Basically, Konczal argues that the mix of programs we have now works just fine.

I think Konczal is wrong, for a one, er, basic reason. Basic Income, unlike the programs we have now, will be politically easy to raise once it's in place.

Redistribution programs (the good ones anyway) are designed to help a lot of people and hurt a few. But this means that the constituency opposing redistribution is much more concentrated and focused than the constituency in support of it. As Mancur Olson might tell you, this makes redistribution a tough sell politically.

But if you have one big, high-profile redistribution program, you can get enough popular support to overcome the concentrated opposition of the rich people footing the bill. As an example, look at the minimum wage, which gets big popular support. The Democrats can go back to the minimum wage again and again as a populist issue.

But that's not true for the whole array of redistribution programs we currently have. If the Democrats want to increase the strength of the safety net as a whole, they have to mount a populist campaign for each one of its components. That's hard to do. So a lot of the components of the safety net get left behind, or killed by Republicans when no one is looking.

Such a fate would never befall a Basic Income. It would be in the spotlight all the time.

In fact, by endorsing Basic Income, libertarians are walking right into a trap. Anti-redistributionists' great fear has always been that the masses will use the power of majority rule to simply vote themselves more money. As things stand, the fragmentation of our redistribution programs makes it easier for the anti-redistributionists to punch holes in the safety net. If the fragmented system were replaced with one universal, high-profile program, the result would be a huge political gift to redistributionists.

Libertarians will eventually realize this, and their tentative support for Basic Income will vanish. But pro-redistribution liberals should not be so quick to dismiss the idea just because it came out of the mouths of their opponents in a moment of confusion.

47 comments:

Just to clarify, I'm not saying our current programs are sufficient or work just fine. I'd like to see more streamlined cash, and I worry about the high implicit marginal tax rates that come with this system (indeed with any means tested system). I'm saying the libertarian argument presented there describes a welfare system that doesn't exist.

This is an interesting point but I'm not sure which way it would go. Because it would also be easier to scale down or remove outright, or more likely, die on the vine by letting its real value decline. There aren't a lot of efforts to reduce the minimum wage, so that would be a point in your favor. I'll have to think about it more.

It would be interesting to establish an over-riding cap on the effective marginal tax rates across all programs and all income levels at say 60% (50%??). It would be hard for the right to argue that effective rates should be over 50% for the poor when they claim in other contexts that 20% is a crippling disincentive to invest.

If you're worried about the high implicit marginal tax rates of a means tested system, shouldn't you be worried about the high actual average tax rates of a BIG?

We did a back-of-the-envelope calculation in New Zealand of a BIG, and found that for a BIG of $10,000 a person a year, paying for that would require an average tax rate of 50% (average, not top marginal. So, for example, if you exempted the first $10,000 of income from tax, the marginal rate would need to be higher than 50%). And a BIG of $10,000 a year at the time implied a 1/3 cut in the basic pension income for a single person. So, it would have involved cutting the poorest's income sharply and/or raising tax rates massively.

This is perhaps the most interesting comment on the UBI meme that has arisen in recent years.

There is also a darkly nationalist underbelly to the UBI as it stands. It can't be implemented globally, so will have to be limited to citizens. Why do Americans deserve free cash transfers and, say, Laotians do not? Is the wealth of nations dynastic?

Also, the growing libertarian support for the UBI is a tacit admission that the current system is hollowing out the middle and making it harder for laborers with not-in-demand skills to survive.

I think it should be possible to extend basic income benefits to all immigrants, not just citizens, (although you'd need some sort of residency requirement: giving a check to someone here on vacation is obviously stupid) and even have relatively open borders. As long as getting a job is still a basically an appealing option for most people, it should also be an appealing option for immigrants, so they won't drain the system. People from poor countries might have lower standards for what an acceptable income is, but immigrants are generally still very willing to work.

I mean sure, a global basic income would be fairer. I don't think it's automatically impossible, although of course it's not remotely politically viable for any foreseeable future. The number would have to smaller because the global per capita GDP is significantly smaller than the US GDP, but maybe $500/yr or something might be economically workable.

And I do think it's justifiable to pay American residents more than people who live in poorer countries. Americans have access to higher paying jobs, so you can give them more money without discouraging them from working too much. And on the other hand, living in America is more expensive, especially if the "standard of living" is in relative terms rather than absolute terms.

Why? In large parts of the world the people have made a collective cultural choice that they prefer corruption, poverty and violence over such alternative evils as being honest, allowing birth control and educating their girls. Why should the West top up the incomes of Third World countries that have chosen to be poor?

I would think belonging to the taxpayer pool for a minimum time period would be a requirement. As long as tax systems (apart from the crazy US one that is) are residency based, I would (permanent) residency would be entry requirement.

It doesn't have to replace anything initially. It can just start low and displace them over time as it would be more popular. It does mean higher marginal tax rates, but if lowering them meant anything we would be booming.

You can have basic income when you have the majority of people agreeing with the statement "I'm happy to work hard all week for a pittance of extra money on which I have to pay 50% income tax, while others do nothing, drink beer and smoke pot for a living".

Neil - your assertion that every additional dollar earned by everyone would be taxed at 50% is unfounded. Most UBI schemes have graduated rates for earned income, same as the current non-UBI tax structure in place for US income tax today. Plus, most rich people still voluntarily worked in the 1960s when the US tax code claimed up to 90% of their pay... and middle-class Europeans today voluntarily work under tax regimes that claim up to 2/3 of their earned income and welfare regimes that are far more generous than here... so I'm not sure why you think most people in general wouldn't work for extra spending money to top up their UBI, even if 50% of it was taxed away?

(I do realize though that you're just blowing smoke here once you rant on about "those people" drinking beer and smoking pot... I guess those activities aren't as socially enriching as the lower classes working for minimum wage or the richer classes drinking 100-year-old wines and snorting coke all day instead of working?)

I think the basic income, from the Libertarian point of view, is a good way to get rid of the other programs, and make the transfer as transparent and nondistortionary as possible, and keep the government out of setting prices and wages. And Noah shouldn't see it as a gift; Noah should get over his liberal tribalism and move towards a fusion with libertarians, by stating which program he'd like to get rid of in exchange for the basic income. We'll see if Noah can grow up a bit and be as mature and sophisticated as libertarians. There's always hope.

You say redistribution a lot here. Is a basic income program necessarily "redistributionist" if an economy is operating below capacity? Could it be "distributionist" to everyone until that point? Why assume the economy is always at full capacity.

Distributionist suggests that the economy naturally (without outside interference) gives each person exactly what their due, based on their contribution. So if one person gets 100% of the economic gains up to the capacity point and everyone else gets nothing... that's ok because all the gains were distributed to someone.

Redistributionist suggests that the distribution achieved by the above forces actually doesn't result in a socially desirable distribution, both with the gains already realized by economic growth in the past, as well as gains to be realized by economic growth in the future. It seeks to rectify that through some kind of shifting.

I'm not sure you get that when you ask "why aren't you just using the word distributionist?"

No, You don't get it. The word redistribution implies taking away from some to give to others. My question/point was that in an economy that was not currently using many of its resources to produce real goods and services, a basic distributing of cash (income) might not take anything away from anyone if that money created demand to employ those idle resources in producing more real goods and services. The federal government does not always need to take dollars away from someone in order to give them out. They can make them easily at very little cost.

You;re attacking a straw man, I am very disappointed in you, because I generally like your blogs. The point of the criticism wasn't that basic income wasn't good. The point was that the libertarian arguments for it, namely how bad the current welfare is, was greatly exaggerated and completely invalid. So it really does not matter whether you think UBI is good or bad, because that's not the question we're talking about. The point is that if you want to make a case for UBI you should base it on facts, not on fiction and lies.

UBI would be universally supported, as Noah points out. Just as Social Security is. But that wouldn't stop continual plutocratic attacks on it and attempts to reduce it, keep it from growing, etc.

But we would not be able to end ALL of our other redistribution programs. We would still have to redistribute for education, health care and other places where market failures are so bad that social insurance is needed.

Noah, your premise can be flipped in its head. Combining all those programs into a basic income may make the result easier to cut. I think one of the reasons Paul Ryan is obsessed with turning everything into block grants is because it's easier to cut that one number than shave a hundred programs.One of the successes of SS and Medicare is the perception that individuals paid for those benefits. There is tremendous public support for those programs, much more than basic income would likely attract. In theory basic income sounds more "efficient" but efficiency is a utilitarian idea that doesn't always translate well across broad populations, mixed constituencies, and human nature. There really is no universal definition of efficiency in an economic sense because too many other human factors come into play.

It actually wouldn't be... as evidenced by the inability of Paul Ryan (and everyone else who's ever tried) to cut Social Security, which is essentially just a UBI scheme for the old. Once *everyone* in society - except the truly rich - becomes dependent on UBI for X% of all their lives' expenses, it would become untouchable... what politician would survive reelection after he/she directly took 10% or 20% of every voter's income away? The attack ads (if not riot signs outside his/her office in Washington) write themselves.

Why isn't anyone arguing that a basic income program would be a subsidy to business?

That is, it would provide businesses, especially small businesses, with a steady flow of customers, and also make it possible for them to hire staff at lower wages.

At present, a few big business players have injured the rest of the econsystem by slashing the income of their employees, and (by changing the playing field) other businesses employees, while also scooping a majority of disposable income, leaving little for the midrange businesses to target.

A hollowed out economy of big players and microscopic scavengers is basically a desert ecosystem, not lush or lavish. What we need is a redistribution of capital in order to create a rainforest economy instead.

News flash: American companies are doing everything you said anyway, without a UBI for the "losers" to fall back on. No matter what happens with UBI, companies are going to try to cut their staffs down to the bare minimum (whether that's through automation or shipping jobs overseas)... and pay those that they must keep on payroll as little as possible. Might as well have that UBI safety net in that emerging socioeconomic world.

The minimum wage is not a "re-distribution" program to make up for missing inherent market demand. The minimum wage is -- guess what? -- a market demand. Most cogently, a $15 minimum wage is a market demand that can be very easily met by consumers: DOUBLE Wal-Mart's average wage (from $10 to $20 to keep it simple) and throw in HALF-AGAIN more for benefits and Wal-Mart's prices on go up 10% -- at 7% labor costs.

If Wal-Mart were decently unionized and there was nobody to run the union down the race-to-the-bottom (there is such a labor market setup, invented by the Teamsters Union in 1930s Detroit labor depression hell; adopted by Germany, France, French-Canada, Argentina, Indonesia, etc.) the way Wal-Mart has run the supermarket unions down this would have been accomplished long ago.

(PS. If Wal-Mart's average wage were $100 an hour, prices would only rise 63% -- 7% labor costs; $11 average wage according to them.)

Fast food -- the opposite minimum wage price hike extreme: If fast food prices were halved tomorrow (or given away free!) how many more trips to McDonald's would most readers here make? Probably none. Given per capita income near doubled since 1968 (with more people working) and the minimum wage lost $3.50 an hour in value -- we may have been sinking lower and lower below the all telling minimum burger line for decades and decades! :-) IOW, there is probably plenty of room for a price increase.

Let me continue on fast food because it is the max price jump here. The 65% of McDonald's customers who go through the drive through are not scared off by diabetes; not afraid of heart failure -- who cares about a 25% price increase; it's addictive; and a $15 an hour minimum wage will add another warm glow: the employees will no longer be being paid like they were working in a Bangladesh shoe factory.

Want to get back a working democracy? Just need to have the same financing and lobbying as the 1% and 99% of the votes. Only way: legally mandated centralized bargaining. The Teamsters private version has their truck drivers (local 804 where I spent a whole year in 1970) getting a 30-and-out pension of $3900 a month -- about twice what your regional airline pilot earns.

Allow me to moan a little bit more:There are places in this country (e.g., Chicago) where they want to take four years to raise the minimum wage to $13 an hour. What business would take four years to reach a price of $13 if they thought the consumer would pay that much today -- especially if they realistically supposed they could get all the way to $15 (if not $20!)?

Kinda brings back the big question of 1956: "Does the Negro want too much, too fast?" In 1956, the minimum wage was $8.75 in today's dollars.

As with so many proposals, the effect of moving to some sort of basic income system would depend on the political situation at the time of implementation.

I lived through the era when the mad houses of America were largely emptied. Many of the promoters of de-institutionalization were motivated by deep concern for the insane. In their innocence, the idealists actually believed that half-way houses and out patient services needed to make the new system work decently would be adequately funded. Of course that's never happened. In the increasingly conservative 70s and 80s, states and local governments simply used the end of the big asylums as an occasion to save money; and the cities filled up with lunatics baying at the moon.

If you decide to replace Social Security and the other programs with a simple income support mechanism, you're betting that you have the power to ensure that the transition doesn't simply provide the powerful a opportunity to increase the immiseration of the poor.

Basically, what's happening is that basic irrefutables are being refuted.

I.E. the way the economy works, in conjunction with democracy is that money is taken away from the selfish jerks in business and given to the people, so they can spend. The people are ever-changing in there proclivities to spend either here or there so there spending patterns are disruptive. But disruptive, over all WRT the economy is a good thing. That means people with capital have to constantaly scramble to provide the consumer with something good, even as their tastes are constantly evolving with the change in technology.

So what we want, to preserve a vibrant economy for our brethren and the sons and daughters of our brethrens brethrens, not mention all kinds of sisterhood is a tax system the really redistributes income back down to the lowest common denominator.

Not every one will agree. But I'll tell you this. The rich and their army of tax accountants, Consigliere and lobbyists definitely disagree. They do what they're told when they do what they're paid to do.

'Anti-redistributionists' great fear has always been that the masses will use the power of majority rule to simply vote themselves more money.' And you must admit, it worked pretty well for CEOs and their BoDs.

I agree the idea of basic is important. It would also cut against the "Clean living" provisions people want to add - so wonderfully skewered by the ontion http://www.theonion.com/articles/new-law-requires-welfare-recipients-to-submit-swea,36626/ .

Just lower the age of social security availability to 16 and make it work like an old school defined benefit plan.

Konczal didn't argue "that the mix of programs we have now works just fine." He say there wasn't much bureaucratic waste. That's a huge difference.

The primary problem with the current system is that it's full of holes. Yeah, there's little waste, but lots of people who need help don't qualify for any of the big seven programs. Under a basic income scheme, they'd get help, and no one would be able to tell them they don't qualify.

Wasn't there a Canadian experiment with a basic guaranteed income back in the 70's? I believe it was successful until killed by the conservative governments in later years. If I remember correctly, it seemed to suggest that providing everybody with a basic income boosted the growth of small business and generated more than the program cost. May have to revisit that period in history (although Canadian history is largely ignored in the United States).